Radix Blog

Why decentralisation matters?

Decentralised public network - a representation of distributed ledger technology use
Piers Ridyard
30th April 2020

The Radix View

Decentralised public networks are working to create a new global digital commons for the wealth of the world. This commons is designed to connect people together to create an interconnected web of crypto wallet addresses where the ownership of anything can be sent, stored and programmed via distributed ledger technology.

Like IP addresses on the internet; a crypto wallet address is the passport to this new digital realm of ownership. It gives every human the right to a safe place to store their wealth. It changes money, identity, and property from something analogue to something truly digital.

Decentralisation lies at the heart of this mission – a fundamental desire to build a truly antifragile, self-sustaining, self-perpetuating system. One that the world can rely on and trust.

Why does decentralisation of a protocol matter?

The desire for decentralisation springs from a fundamental desire for antifragility. For some this is about a distrust of authority. For others, it is about creating better systems for storing human wealth. If a good is publicly owned, we generally have less concerns about it being able to be taken away. Like any fundamentally important infrastructure, we ideally want it to be resilient and self-repairing.

People care for the same reason they care about the internet continuing to exist: it is vitally important to them. The stakes are even higher for decentralised public networks as this is where people’s wealth will live, not just information.

Anti-fragility really just means “self-sustaining”. Measures include:

  • Once launched, can the protocol be stopped by its creator?
  • Can the protocol live independently of any single entity or person?
  • Does the protocol grow stronger as it grows in importance?

For a network to be self-sustaining all parts within the ecosystem need to feed and sustain each other. For a decentralised public network, there must be an ecosystem that derives significant value from the existence of the ledger. This ecosystem must either “work for” or “pay for” the ledgers continuation and protection. There should be no irreplaceable parts of the ecosystem.

Network effects are critical here – more users drive more users; the internet is useful because everyone is on it. Open source is also critical. Hence, if the software the network is based on is not open and free, I can never 100% trust it.

Decentralised public networks vs Private Ledgers

Like in the early days of the internet, the next few years are going to see the rise of private networks. This includes entities like the Chinese government, the ECB etc. , all of whom are rolling out trials.

Only part of this is a distributed ledger technology battle, a much larger part of this is an ideology battle. Public ledgers were created to make incentives clear and fair – the token and the network are the ways that you interact with the platform; there is no hidden battle or agenda. Each entity launching a private/closed/consortium/permissioned network has their own agenda and value extraction criteria. This is going to create competing fiefdoms, with a high likelihood of none of them winning.

Decentralised public networks are going to lag behind in this battle – they will continue to feel like toys to the big companies that are busy creating their own distributed ledger technology for their own partners and internal processes.

Public networks, run by not-for-profits, on open source code, supported by communities of believers are the messy cousins to the slick private networks. However, these public networks also have a high chance of winning in the long term because they are neutral ground for connectivity.

Launching a public network, in the right way, with the right ideology, and a community that believes in that ideology needs to happen as soon as possible. What that network does will feel like a toy compared to what private networks do, and will continue to do so for a few more years – but it is critical to build that beachhead early, as network effects happen slowly and then all at once.

How do Tokens help Decentralisation?

Distributed ledger technology has to provide computation (consensus), storage (state) and security (attack resistance). These three activities do not come for free, and must be provided by an army of servers and capital which is in turn paid for in some way by the users/beneficiaries of the system.

For decentralised public networks, tokens are a critical tool in providing a means to pay for these three essential functions without needing to have a company to coordinate the payments. Once distributed the tokens can be pledged towards the security of the network (proof of stake attack resistance) as well used as a way for users to pay those that provide the computation and storage to the network.

If designed correctly, the token removes the need for any centralised coordination of any of these activities. Anyone can independently decide to provide computation and security to the network or the acquire tokens.

The token provides the basis for payment, security and open incentive.

Building a Decentralised Public Network

For any user to use a network they require two things. Firstly a way of interacting with the ledger (a cryptographic address). Secondly, a means of securing anything they own on the ledger –  these two functions are provided by crypto wallets.

For public ledgers to succeed, network effects are critical. In very simple terms, that is an engaged audience of network users. They must, therefore, do one thing exceptionally well – build engaged audiences of crypto wallet owners. 

Crypto wallet owners are engaged by the objects that they can own once they have a wallet. An object can be anything from a simple token, to access to a decentralised application.

A public ledger is a two-sided marketplace made up of object creators and object consumers. Anyone with a crypto wallet can be an object consumer. Anyone who wishes to reach the audience of crypto wallet owners can become an object creator. The object consumers attract the object creators, and vice versa.

One side of this marketplace must be bootstrapped. This can happen, for instance by attracting object creators that bring their own audience. Alternatively, bootstrapping can happen by creating a mission and vision strong enough to build a willing audience of object consumers that attract object creators.

For the majority of crypto platforms, the first object to be consumed is the platform token itself. This can have an incredibly powerful bootstrapping effect for creating an audience of object consumers. The strength of this first audience depends on two things. Firstly, on how widely the platform token is distributed. Secondly, onhow engaged the audience who receives those tokens will be with future, yet-to-be-created objects.

An analogy to this is the iPhone. The iPhone was launched without an app store. The first iPhone was desired for the basic functionality it presented as a phone and music player. The audience of people who purchased it bootstrapped an audience for app creators. This meant that when the app store was launched, app creators wanted to create apps for the iPhone. Not necessarily for any technological reasons, but to reach the captive market that Apple had created for them. 

If a token is to be used to bootstrap an audience of engaged object consumers, then the token itself must be desirable. Particularly given that the token will be the only object that can be consumed at the start of a network’s life.

This requires an audience of early adopters. People who want to be there because they believe distributed ledger technology is the future. Some are just in it for the money, but people ONLY motivated by money are not an engaged audience. They will do nothing more than just hold the token, and create no further incentive for object creators to come to the platform.

Who is an early crypto token adopter and what motivates them?

Early crypto adopters are not here for utility, we are here to support our alternative world view:

The early adopters of Bitcoin didn’t adopt Bitcoin because it was 10x better to use than money; they adopted Bitcoin because it was a 10x better concept of money – decentralised money.

The early adopters of Ethereum did not adopt Ethereum because it was the easiest place to build an application, but because it was a 10x concept of an application – decentralised applications.

An early crypto token adopter believes in a crypto-centric world. We believe that EVERYTHING will be tokenized, tradeable, and digitally owned one day. Moreover, we believe that a revolution is underway and we, as the early adopters, want to be part of it.

We have strong ethical ideas of what open and fair mean. We want to be tribal, first, smart. Most importantly,  we want to be proven right about what the future holds. 

The revolution would deliver a vision-centric, public, decentralised ledger. This ledger will allow us to have a stake in that ledger (own the token). It would be open and fair, but would also win. Moreover, we want to win from it winning (e.g. make money on the token). 

We don’t want the “old school” (banks, evil corporates) to win with their own private versions of this using distributed ledger technology. Rather, we want a community of believers to be able to out-build and out-compete the old school and we are willing to go through a lot of user pain to try new things that look like they could replace the world as it is today.

The typical token customer has already bought into the idea of decentralised public networks. They want a trump card to be able to wave at other networks/tribes (e.g. the most scalable, the most powerful, the most decentralised, the most users etc); but once they are “in” the community, they want things to play with that shows them their vision of the future is coming true. 

To sum up, in order for the world’s wealth to be hosted using distributed ledger technology, it requires not only a community that fuels the need for such a thing. It also requires several ideological ingredients to exist: A differentiated reason to exist, an engaged community of believers, sufficient decentralisation, fair distribution, functional governance and minimally extractive services. We will delve into these key ingredients in our next post.

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